Green Investing for your IRA

We need to invest dramatically in green energy,
making solar panels so cheap that everybody wants them. Nobody wanted to buy a
computer in 1950, but once they got cheap, everyone bought them. 

 -Bjorn Lomborg

While there is no “green IRA”, you can pick a
mutual fund, such as the ones mentioned above, or select stocks yourself in
within your IRA or Roth IRA (see
To Roth or Not to Roth).  That is, when you contribute cash to
your IRA, it sits in a money market account, doing little until you invest it. 

 

For an increasing number of investors, “doing good” with their
investments is as important as doing well.

Tapping into this new environmentally
conscious market, more not-for-profit organizations are teaming up with money
managers to create a new line of impact investments.  Here are some examples: 

Green
Century Funds
;

Aquinas Funds; and

Calvert

Caution:  before you pick any, use a resource to
evaluate and compare, such as Kiplinger’s
Finance

Here are the steps to
invest in environmentally conscious companies:

 1.     Select type of IRA:  Before opening and IRA, decide whether a
Roth IRA or a traditional IRA suits your needs (see the Financial Literacy post). 

2.     Open
an IRA
:  Opening an IRA has never been easier.  You can contact a financial
institution, by phone or online, that offers IRAs, usually a bank, brokerage or
mutual fund company.  Do your research
and be sure the broker offers a self-directed IRA, so you can pick your
investment options.  Also, be mindful of
fees charged for trades, that is the buying and selling of stocks or funds.  You want a discount broker.  Finally, name beneficiaries in case something
happens to you. 

3.     Choose
your Investments: 
Your IRA can be made of stocks, mutual funds
or a mixture.  In choosing stocks,
experts such as Jennifer Schonberger of The Motley Fool, suggest that
you focus on particular countries as you make green stock or mutual fund
selections for your IRA.  She notes that China
is an innovator in green technology, though it is also known as one of the
world’s biggest polluters.

4.     Fund
your Account:
  Make a plan to fund your account and stick to
it!   Starting early and contributing
regularly can have an enormous impact your account’s value due to tax-free compounding
of returns (see “Save 10% of
Income
”).

As with any stock market investing, your Green IRA may show you a roller
coaster ride of value swings; however, if you have a long-term horizon, the
significant growth potential should out-weigh this volatility risk.  Also, if you pick a loser, you can always
sell your investment (tax-free) and invest in another.  Good luck!

 

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